US: recession and unemployment in 2008

‘A recession in 2008 would raise the national unemployment rate by between 2.1 and 3.8 percentage points, increasing the number of unemployed Americans by between 3.2 million and 5.8 million’. This is what the economists John Schmitt and Dean Baker from US Center for Economic and Policy Research (Cepr) foresee in a paper just released and entitled “What We’re In For: Projected Economic Impacts of the Next Recession”.

According to Cepr, the unemployment rate and the number of unemployed – based on the historical pattern – would continue to increase through 2010 (to 6.7 percent in the case of a mild-to-moderate recession) or 2011 (to 8.4 percent in the case of a more severe economic downturn).

In the introduction to the report, Schmitt and Baker write: ‘the deflation of the largest and longest-lasting housing bubble in U.S. history is now making it all but inevitable that the United States will enter a recession in 2008. The last few weeks have seen a remarkable degree of consensus across most of the economics profession around the need for a sharp short-term stimulus to the economy. The goal is to avoid a recession or, in the likely event that that isn’t possible, to make the recession shorter and more shallow’.

‘The unusual level of agreement around the need for strong measures stems from the economic profession’s familiarity with the huge economic and social costs of recessions. In this paper, we use the experience of the last three U.S. recessions –1980-82, 1990-91, and 2001– to make some simple predictions about the likely impact of a recession on a series of important economic and social outcomes. The last three recessions provide a useful benchmark because two of the recessions — 1990-91 and 2001– were relatively mild as recessions go, while the 1980-82 recession (actually two back-to-back recessions) was the worst since the Great Depression of the 1930s’.

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